Ticonderoga Securities on Homebuilding and Building Products / September Starts and Permits Preview – A Bit Optimistic?

Ticonderoga Securities on Homebuilding and Building Products / September Starts and Permits Preview – A Bit Optimistic? by Stephen East

September Starts and Permits are released Tuesday morning at 8:30 ET. The consensus for both is 580K or a 2% sequential increase in Permits from 569K and a 3% month-over-month decline in Starts from 598K. In our opinion, expectations for both metrics are somewhat optimistic, but given the volatility of the Multi-Family metrics not out of the realm of possibility. Given intensifying investor concern over the broader implications of the foreclosure moratorium, we would expect an amplified negative reaction in the builder equities should Starts and Permits miss forecasts this month. Conversely, we believe the potential for any positive reaction will be muted should results be better than anticipated, again due to moratorium uncertainty. Possible upside, in our opinion, would also likely be driven by Multi-Family metrics and not Single-Family.

The September Total Starts consensus of 580K equates to 102% of Total Permits in August. With the exception of last month (107%), Total Starts have consistently run below the Permit levels of the prior month since December 2009. Similarly, Total Starts in September have been below August Permits over the past 5 years. We believe Single-Family Starts will be in the mid 400K area (438K in August with a 442K monthly average post the tax credit). Employing a 440K point estimate for Single-Family Starts and adding 120K for Multi-Family yields an estimate of 560K or roughly 3.5% below the consensus. We note that Multi-Family Starts have averaged 112K YTD. Considering that 160K Multi-Family Starts were posted in August, our estimate of 120K may prove optimistic as a pause in activity may be in order. A risk is that 168K Multi-family Permits were issued in August. However, Multi-Family Starts have a history of running well below the prior month’s Permit activity.

Embedding a 150K assumption for Multi-Family Permits (142K average YTD, 161K over the past 3 months), we believe Total Permits in the 550K area is appropriate. Single-Family Permits averaged 370K during the pre tax credit period of January-to-April 2009 and 428K for all of 2009. Obviously, our estimate employs a Single-Family Permit level in the 400K area in comparison to 436K, 421K, 406K and 401K, respectively for May, June and July and August.

Stocks of Note - PulteGroup (NYSE: PHM), Lennar (NYSE: LEN), Toll Bros. (NYSE: TOL), DR Horton (NYSE: DHI), NVR (NYSE: NVR), Beazer (NYSE: BZH), M/I Homes (NYSE: MHO), Brooksfield (NYSE: BHS), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL) and Meritage (NYSE: MTH)

---

Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!

You May Also Be Interested In

• Needham & Company Reiterates a 'Buy' on NetApp (NTAP); Solid 4Q Overshadowed by Conservative 1Q
• Nomura Securities Raises PT and Estimates on PetSmart (PETM) After Good Q1
• Barclays Cuts PT and Estimates on Dell (DELL); Apple's (AAPL) Momentum Proves Disrupting

Create E-mail Alert Related Categories

Analyst Comments

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?

Follow StreetInsider.com On Twitter